Many industries have been disrupted by modern technology, resulting in highly personalized and differentiated end-user experiences. Consumers have come to expect this level of service in every aspect of their lives — and health insurance is not exempt from this expectation.
However, with health care costs at an all-time high — and expected to continue rising well above inflation — delivering on these expectations has been a huge challenge for health plans.
This article examines the opportunity posed by Individual Coverage Health Reimbursement Arrangements (“ICHRAs”) and why health plans should strongly consider joining the ICHRA movement in the immediate future.
What is an ICHRA?
In June 2019 the Departments of the Treasury, Labor and Health & Human Services jointly published a final rule to expand the flexibility and use of Health Reimbursement Arrangements (“HRAs”). That final rule allows employers to reimburse employees a fixed monthly sum for health insurance premiums and other qualified medical expenses without having to provide a traditional group plan. This type of account is referred to as an ICHRA. ICHRAs are an attractive option for many organizations, particularly smaller employers that struggle to (or simply can’t) afford to offer group insurance.
Unlike other HRAs, ICHRAs have no minimum or maximum limits for employer contributions. Reimbursements are entirely tax-free, so there are no payroll taxes for employers or income taxes for employees. Further, unlike traditional group insurance plans, there’s no employee participation requirement to offer an ICHRA.
(For more information, visit the Centers for Medicare and Medicare Services' Individual Coverage Health Reimbursement Arrangements: Policy and Application Overview.)
Considering they’ve only been around for a few years, ICHRAs have already become a popular health care coverage option by providing modern, differentiated experiences that can drive meaningful engagement with customers and members.
3 Reasons Why Health Plans Should Consider ICHRAs
1. Ignoring the ICHRA market may pose a significant risk to your business
Group membership may be at risk due to ICHRAs. If health plans don’t make ICHRAs part of their strategy going forward, a portion of their members are likely to migrate to competitors who do. Put simply, health plans stand to lose more than just potential opportunities (i.e., opportunity cost) if they ignore ICHRAs — there is a genuine and considerable risk to their current employer-funded membership.
As reported in Becker’s Payer Issues, Centene, the largest individual marketplace carrier in the country, predicts that almost half (45%) of the employer group market is at risk of being disrupted by ICHRA growth. Total national spending on the ICHRA segment was already in excess of $84 billion back in 2021, per the Becker’s article, and is expected to grow to $170 billion by 2030.
Another serious concern for health plans is that carriers and enrollment platforms have announced plans for expansion into the ICHRA segment. If health plans allow themselves to stagnate, the potential impact of ICHRA disruption could be substantial.
2. ICHRAs are no longer an experiment
In a market that has historically been resistant to rapid change, it’s easy to write ICHRAs off as “an experiment” or “not yet proven.” However, despite being around for a comparatively short time, ICHRAs are already making a mark on the industry.
Well over 50 percent of U.S. states are now “ICHRA friendly” — meaning individual coverage premiums are lower than small group premiums. Analysis by Ideon finds there are 30 states where individual health plan premiums are equal to or less expensive than small group premiums in 2024.
If you’re wondering, “how can this be?” the answer is simple: spiraling health care costs.
A WTW study found global health costs rose by 10.7% in 2023 and projected a further 9.9% growth in 2024. The figures for North America were only marginally lower, at 9.8% in 2023 and 9.4% in 2024.
With health costs skyrocketing, many employer groups face hefty renewal rate increases, which might make it cost-prohibitive to offer competitive and affordable health insurance to employees. As a result, some Health Plans have decided to exit the market. The individual market, and ICHRAs in particular, enables employers to offer health care coverage to employees without dramatically overspending compared to what they can afford.
Given all this, it may come as little surprise that the number of workers offered an ICHRA in 2023 grew by 171 percent compared to 2022, according to a recent analysis by the HRA Council. The Paragon Health Institute estimates 500,000 people have ICHRAs today, while the Congressional Budget Office claims 2 million workers will have ICHRAs by 2032.
3. ICHRAs allow many small groups to offer coverage for the first time
Today, groups that had never been able to offer health coverage due to locked-in high premiums are — for the first time — able to leverage ICHRA solutions that are affordable for both the groups and their employees. The ICHRA solution provides an affordable alternative to traditional group plans, enabling employers to make themselves more attractive to top talent without dramatically overspending.
For health plans, this makes ICHRAs an opportunity to expand into previously untapped customers, so long as they act quickly and bring their solutions to market before this option is exhausted.
The Advantages of ICHRA Administration with Benefitfocus
From quoting to billing, health plans face a host of challenges that are only exacerbated when trying to expand into new, unknown markets and products.
From disparate systems and data issues to inefficient processes, health plans frequently struggle to maintain smooth quoting and enrollment processes, which in turn affects the customer experience.
To enable them to maximize efficiency, improve the customer experience, and remain flexible enough to capitalize on new opportunities such as ICHRAs, health plans need a platform that offers:
- A single, simple system that streamlines the entire quote-to-pay process, complete with hands-on support
- Tools to help them empower brokers by simplifying ICHRA administration from proposal to funding
- Data and insights to help them and their customers manage their entire book of business
- Flexibility in adapting to market changes
- Complete transparency into member enrollment and maintenance
- Simplified funding with HRA Partners
… and this is precisely what Benefitfocus can provide.
To find out more about Benefitfocus, and how we may be able to help your health plan streamline its entire quote-to-pay process.
The information provided does not, and is not intended to, constitute legal advice or a legal opinion; instead, all information and content herein is provided for general informational purposes only and may not constitute the most up-to-date legal or other information. Benefitfocus does not act in a fiduciary capacity in providing products or services; any such fiduciary capacity is explicitly disclaimed. This article/blog post contains links to other third-party websites. Such links are only for the convenience of the reader, user or browser only; Benefitfocus and its affiliates do not recommend or endorse the contents of the third-party sites.
